Friday, 18 November 2011

UK: governance issues raised by Labour Party leader

The Leader of the Labour Party, the Rt. Hon. Ed Miliband MP, delivered a speech yesterday at the Social Market Foundation in which governance issues received his attention: see here. More specifically, Mr Miliband, observed:

The second area where we need fundamental change is in the way companies have been told to think about their worth. The old way said that short term shareholder value should drive business strategies, and that would deliver for everyone. That the board should first and foremost be concerned with the short term share price. That institutional investors were right to be impatient for quick returns. But again what business has told me is that it is hampering their ability to create productive wealth. Instead, our economy has been held back by the short-term pressures under which our companies operate. Examples abound. The inability of a great British firm like Cadburys to resist Kraft’s takeover once speculating shareholders had decided there was a short term profit to be made. The battles with institutional shareholders in which Rolls Royce had to engage during the 1990s, so that it could make the long term investments that have made it such a success today.

In recent weeks, travelling around the country, I have met business people over and over again who tell me they simply cannot get support for the long-term investments they need. What is interesting is that sometimes it is different forms of ownership, from mutuals to family owned businesses, that provide protection against the predatory short-termism of the system. So to address this short-termism we will need to address a whole range of areas. Including those raised by Richard Lambert, the former Director General of the CBI. We need to look at why so many funds of institutional investors seem to be managed as if the only important issue was the next quarterly announcement. We need to look at whether the voting rights of shareholders should always be the same from day one of ownership. And we need to look at how the tax system can encourage and discourage short-term behaviour that holds Britain back".

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